I happened to visit an acquaintance, who, incidentally is a broker. I saw him working furiously on his blog and his newsletter. He was writing a song about some specific company and how there were bright prospects for its stock. During one of my earlier visits to his office, he has mentioned that he had some stinkers in his portfolio. I questioned him as to why he was recommending a stock that he was sore about?
Well, he mentioned that he was still sitting on 80k+ shares of that stock and that he had to have the market buzzing with this stock so that he could get rid of it. I was amazed at the total apathy with which brokers work. I had extensive discussions with two other brokers the very same day. I would like to share my views here...
a) There are many reasons, other than the brokerage income, why a broker would recommend a stock to you. Your broker could be helping out his superiors or any other broker friend by recommending a junk stock to his clients. Your broker would have you own a small quantity of such junk stock and would later admit that 20% of his recommendations may go wrong. Well, based on what I saw, nothing goes wrong. In fact, the trap is set.
b) All companies conducting inside operations, while SEBI is not looking (Does SEBI look?) put out a huge marketing and PR campaign just about when their stock is peaking or reaching life time highs. This is the moment when the market price is maintained by the company operators so that the stock is offloaded in the market to the retail investors.
c) A brokerage earns much commission in recommending junk and penny stocks. One of the brokers did try and explain me this mechanism, but it was too repulsive in terms or thought and intention, and so I cannot recollect the exact mechanism that he explained.
d) Brokers here in Jamnagar, India (I have only met brokers from this city, but I am sure this rule applies to many) have piled on most of their clients with stocks like Resurgere Mines and Minerals, Future Capital Holdings, Karutari Global, Shree Precoated Steel Limited, Silver Spinning, Sturdy Industries etc.
It is chilling to note that many of these companies had put out huge advertisements in financial newspapers (The economic times, I believe) while their stock prices had reached a 52 week high. There is more than 95% erosion in the market price since the ads. What is worse it that the Broker continues to recommend the stock WHILE IT IS LOOSING VALUE IN TERMS OF MARKET PRICE.
e) The Brokers keep changing their team of people who sit at the trading terminals. This practice ensures that the team cannot observe the game being played by the broker.
I was visibly jarred when I met these brokers here in Jamnagar. There is nothing human about them or about the way they think.
Please don't get me wrong here. There are many good brokers. I have a very very dear friend who happens to be a broker.
However, it pays to know that a broker is rarely your friend or your well wisher. In fact, the broker is one of the most dangerous "wolf in a sheep's clothing" immoral beast you may end up interacting with.
Copyright - Nitesh Kotecha
Well, he mentioned that he was still sitting on 80k+ shares of that stock and that he had to have the market buzzing with this stock so that he could get rid of it. I was amazed at the total apathy with which brokers work. I had extensive discussions with two other brokers the very same day. I would like to share my views here...
a) There are many reasons, other than the brokerage income, why a broker would recommend a stock to you. Your broker could be helping out his superiors or any other broker friend by recommending a junk stock to his clients. Your broker would have you own a small quantity of such junk stock and would later admit that 20% of his recommendations may go wrong. Well, based on what I saw, nothing goes wrong. In fact, the trap is set.
b) All companies conducting inside operations, while SEBI is not looking (Does SEBI look?) put out a huge marketing and PR campaign just about when their stock is peaking or reaching life time highs. This is the moment when the market price is maintained by the company operators so that the stock is offloaded in the market to the retail investors.
c) A brokerage earns much commission in recommending junk and penny stocks. One of the brokers did try and explain me this mechanism, but it was too repulsive in terms or thought and intention, and so I cannot recollect the exact mechanism that he explained.
d) Brokers here in Jamnagar, India (I have only met brokers from this city, but I am sure this rule applies to many) have piled on most of their clients with stocks like Resurgere Mines and Minerals, Future Capital Holdings, Karutari Global, Shree Precoated Steel Limited, Silver Spinning, Sturdy Industries etc.
It is chilling to note that many of these companies had put out huge advertisements in financial newspapers (The economic times, I believe) while their stock prices had reached a 52 week high. There is more than 95% erosion in the market price since the ads. What is worse it that the Broker continues to recommend the stock WHILE IT IS LOOSING VALUE IN TERMS OF MARKET PRICE.
e) The Brokers keep changing their team of people who sit at the trading terminals. This practice ensures that the team cannot observe the game being played by the broker.
I was visibly jarred when I met these brokers here in Jamnagar. There is nothing human about them or about the way they think.
Please don't get me wrong here. There are many good brokers. I have a very very dear friend who happens to be a broker.
However, it pays to know that a broker is rarely your friend or your well wisher. In fact, the broker is one of the most dangerous "wolf in a sheep's clothing" immoral beast you may end up interacting with.
Copyright - Nitesh Kotecha
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